Solid Earnings May Not Tell The Whole Story For Alamos Gold (TSE:AGI)

The stock price didn't jump after Alamos Gold Inc. (TSE:AGI) posted decent earnings last week. We did some digging and believe investors may be worried about some underlying factors in the report.

See our latest analysis for Alamos Gold

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Alamos Gold increased the number of shares on issue by 6.0% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Alamos Gold's EPS by clicking here.

A Look At The Impact Of Alamos Gold's Dilution On Its Earnings Per Share (EPS)

Three years ago, Alamos Gold lost money. On the bright side, in the last twelve months it grew profit by 20%. But EPS was less impressive, up only 18% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Alamos Gold shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Alamos Gold's Profit Performance

Each Alamos Gold share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Alamos Gold's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 18% EPS growth in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 2 warning signs for Alamos Gold and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Alamos Gold's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.